Would you agree with michael lewis's characterization that the stock market is rigged?
I know you described it in the past as on fair.
There is a difference between unfair and rigged.
I would not be as hyperbolic as that.
We looked at the use of information that did not fit into traditional categories of insider trading, but because of these algorithmic high-frequency computers they could use information that before was really useless.
Thomson reuters was the best example, because we learned that in addition to releasing this information, they gave a two-second edge to customers using high-frequency, which a decade ago would have been irrelevant.
It creates a problem.
We stopped that practice of the two-second edge.
We are looking to see if there is any other eli gaudi -- you legality.
Do you believe that there is il legality?
That is why there is an investigation.
Are the ones at fault the sec?
They have conducted a number of studies and concluded there is no wrongdoing.
Could this be a case of hate the game, not the player?
The sec has been looking at this.
I have been in touch with the sec.
The commissioner spoke very forcefully last week about it.
They need to change the regulatory structure.
We have 60, more than 60 private and public exchanges interlinked.
And in this race for speed, they try to use the milliseconds of advantage they have over other traders to front run the markets and i could manager of the cracks in the system.
The sec needs to look at new regulations, in my view.
They need to put some speed bumps in just to take away the arms race that needs to take chances for everybody to speed, but could have also -- but it was the sec who created this system that has the cracks in it.
It when i was back , they had way more control and could look at so much information.
They could control bid-ask.
In some ways it looks more fair than it was 15 years ago.
No, i don't think so.
It is good to look at high frequency.
Range -- and there are those folks try to take advantage of things to run the system.
If you can get information and michael lewis talks about this -- someone dumping a lot of, i think microsoft used as an example, and to know a few seconds before people can execute the trades, not even seconds, milliseconds.
The race for speed is inherently dangerous, because that leads people to take more and more chances to try to get advantage.
attorney general, you describe it as an arms race.
Is it by definition dangerous?
I ask this question does in just about every other industry in america, we celebrate technological advance, we celebrate the use of technology to build better mousetraps, except, it would seem, in the equity capital market.
Lewis says from his perspective -- and he is not the attorney general of the great state of new york -- but from what he can tell it is legal.
I think he is probably referring to federal law.
We have a different system here.
We look at new york to be a little different, mark eccentrics.
We have speed limits and airbags.
We celebrate technology, but you can cancel a credit card if they get stolen.
What we propose is in the way of speed bumps.
This is a new conversation.
I support this idea -- frequent batch auctions.
You of all of the trades up for one second, and then it is allocated by price.
Not whoever got in a few seconds earlier at a lower price.
That is the way to do it.
There is another exchange, -- iex?
I am a fan of the markets.
But i think michael is right.
We have lost a lot of credibility.
A lot of investors do not have confidence in the market and we need to regulate them to restore that confidence.
Have the regulators lost credibility?
The regulators may have and on their face.
You are -- the regulators may have egg on their face.
Are you making them look like a fool?
Is michael lewis making them look like a full?
I don't think so.
I have been in touch with the sec.
They are taking a hard look at it.
There is a lot that can be done by the exchanges.
We are looking at coal location, extra bandwidth, high-speed switches that creates dust a tiny extra advantage for some traders.
Exchanges their responsibility.
The users of these computers bear responsibility.
I will be looking at new york laws and i'm sure my federal counterparts will be doing that as well.
I understand you are using the martin act.
That is an awfully -- that is my legislation.
That is an awfully powerful legislation.
This goes back to the 1920's and it is broader to the federal securities law, and i am looking at people exploiting cracks in the system, only four unfair advantages.
I do not care if people are buying and selling -- what if you are exploiting cracks in the system, but it is legal?
I give my kids rules every single day.
They are always looking for cracks to get around them.
If they do, foolish on my part to do it.
Are the morgan stanley as of the world, are they at fault because they did not look for the cracks?
That's a very good point.
There are some things that may now be legal, that should be illegal.
We are shining a light on this area.
To their credit, the firms we have confronted with this concept, thomson reuters, rocket wire, they have acknowledged this is the right thing.
That it needs to be addressed in the right way.
This poses risks to everyone.
Is there an opportunity to cooperate with new jersey, given that so much of the trading that takes place happens on the other side of the hudson river, these co-location centers run by nasdaq and the new york stock exchange, for example?
We are in touch with our federal and state counterparts.
I can't comment too much on the details.
You mentioned that the martin act predates federal securities law.
Does that create an opportunity to enforce these issues in a way that those regulators could not, even if they tried?
In some cases.
We have different standards of proof, and the martin act is a broader anti-fraud statute.
It does not have the same requirements as the federal statute, but in substance it is the same thing we are looking for.
We are looking to restore confidence in the markets.
We want to make sure that no one is able to front run some mechanism and no one thought of these rules drafted 5, 10, 15 years ago.
The thomson reuters deal opened a lot of eyes.
A lot of people did not realize that two seconds was enough to move the markets.
Since they shut that down, the markets are not moving when they release the consumer confidence studies anymore.
We have got to get this right.
Are you getting the cooperation?
We are talking to a lot of people and people are coming forward with interesting ideas.
Are there things we can do differently in terms of smart regulation?
Whether we're talking about implementing the volcker rule or dodd frank, it seems there are robots and to the regulators are not arms, do not have the skill set -- or the funding.
Or the funding to regulate these entities?
What is happening in washington is ok.
I wish it was faster.
-- what is happening in washington is opaque.
This is the way that the market is set up.
We are living in an era, taking a breath where the nostalgic world of traders scrawling on pieces of paper, gone, never coming back.
Some folks in washington are moving faster than others, but i look forward to working with my federal and state counterparts.
When we say the nostalgic feel of specialists scribbling papers, is it fair to say that they will have some pretty unfair advantages?
That is where the old rules actually work pretty well.
This is way below -- way before the old rules.
This is why we call it insider trading 2.0. you would not have information on what the market says for two seconds.
You were the only one who knew it.
That was what you are not allowed to trade on it.
Are you saying some people got away with it?
Ok, some people got away with it.
At but we had a set of laws.
Thank you so much.
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